ASIA: China launches massive infrastructure expansion

China has embarked on a major expansion of roads, electrification and dam construction. Pat Byrne reports.

China is undertaking massive infrastructure building which dwarfs the US Marshall Plan that rebuilt Europe after World War II.

The huge investment drive stems from several pressures.

Mao Tse-tung built China as a centralised, command economy. Provinces developed their own heavy industry, and infrastructure separately from each other so that the loss of any one region of China in a war would not see a national industrial collapse.

The result was that even by the mid-1990s, China had less communication, transportation and electrification than India, which has a smaller population.

While the Chinese economy has been expanding rapidly, decades of vast infrastructure development will be necessary for the country to reach its economic potential.

China can do much of this from its own saving. National saving is 40% of gross domestic product.

China's investment splurge was kick-started in 1998, as an antidote to the Asian financial meltdown. Instead of then slowing as the crisis passed, the spending accelerated.

As the New York Times recently reported, "The government, state banks and companies and foreign investors collectively spent $US200 billion in the first 11 months of last year on basic infrastructure projects, one quarter more than they spent in 2001, according to the State Statistics Bureau.

That represents about 15 percent of China's gross domestic product, or about the proportion that the United States spends on health care.

"Even for the nation that built the Great Wall and the Grand Canal, the scale of construction is extraordinary.

"Not long ago Beijing had China's only subway. Now Shanghai, Guangzhou and Tianjin have tunneled under heavily populated residential districts to install subway [rail] systems. Seven other cities have begun construction on their own subways.

"By 2005, China plans to add 8,500 miles of railroad, half of that to places that now have no rail service.

"Shanghai just opened the world's first magnetic levitation train that zips to its new airport at up to 270 miles [412 km] per hour, faster than any other commercial train.

"Railroad officials are completing plans for a $US22 billion high-speed track from Beijing to Shanghai. Meanwhile, workers carrying oxygen tanks are pounding spikes for the 670-mile-long Qinghai-Tibet railroad, which will operate at elevations of up to 16,600 feet on its way to Lhasa, Tibet's capital.

"The Three Gorges Dam, designed to tame the mighty Yangtze River and generate the power of 18 ordinary nuclear power plants, was for years considered the world's most expensive project, with a price tag of $US30 billion.

"It has now been eclipsed by China's latest engineering colossus, a $US60 billion system of channels and pump stations to divert water from the Yangtze in the central part of the country to the Yellow River in the north. In late December, Chinese officials broke ground on the first phase of the project, which they say will alleviate desertification and drought."

Consider this huge hydrology and irrigation project in comparison to the timid approach Australian governments have toward tapping the huge, untouched fresh water supplies in Northern Australia.

One Chinese city, Changqing, has decided to copy the Shanghai model. Huge investments in Shanghai have rebuilt much of the city and made it a major Asian financial centre.

Changqing, in the remote upper reaches of the Yangtze, is being developed as the gateway to China's west. It is spending a huge $US200 billion over the next decade - eight highways, two ring roads, 600 miles of super highway, eight bridges, four sewage and trash facilities, four rail lines, an airport, drinkable water, parks, and a riverside promenade.

But this huge infrastructure development is not without risk. The once fiscally prudent central government is now running hefty budget deficits. State banks, told a few years ago to clean up bad loans and begin acting like capitalist lenders, are pumping tens of billions of dollars into officially sponsored projects that have sometimes failed to produce real returns.

The Communist Party has pledged to support private companies and allow the market to flourish. Financially, though, the authorities are monopolising the country's private savings for a building boom that dwarfs the New Deal and the Marshall Plan.

Certainly, some of this new investment is wasted. One province has 800 industrial parks being constructed simultaneously, and 127 of the country's 143 airports are losing money.

However, China needs to expand faster than other wealthy countries to absorb millions of workers being gradually laid off from inefficient state-run factories and the millions of unemployed flooding in from the countryside.

However, China's workers are also becoming more efficient. Productivity growth is about 4%, and infrastructure investment enhances productivity growth.